Billionaire hedge-fund manager John Paulson wrote a letter to investors saying now is the time to buy gold, as prices are going to soar this year.
Paulson said government spending will trigger inflation, and investors should stock up on gold as protection.
"By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold," Paulson wrote in a letter at the end of 2011 obtained by Bloomberg News.
Hedge funds and money managers have increased their bets this year on higher gold prices.
Paulson's hedge fund, Paulson & Co., is the biggest investor in the SPDR Gold Trust ETF (NYSE: GLD) with a $2.9 billion stake. The fund is up 24% in the past year and more than 10% this year alone.
Paulson: It's Time to Buy Gold
With the U.S. Federal Reserve leaving interest rates near zero until 2014, more investors will buy gold as an inflation hedge.
"The appalling state of fiscal finances of most industrial nations does lead to concerns about the possibility of inflation," Mark O'Byrne, executive director of brokerage GoldCore Ltd., told Bloomberg. "Gold is a crucial diversification given the various risks out there."
The European debt crisis and its uncertain effects on the markets have also pushed investors into gold. China this week pledged to help the region resolve its fiscal issues by investing in Europe's bailout funds.